Disparate Impact Becomes Harder To Prove

The Second Circuit Court of Appeals affirmed a jury finding of age discrimination premised upon alleged disparate impact in Meacham v. Knolls Atomic Power Lab. a/k/a KAPL Inc. , 381 F.3d 56 (2d Cir. 2004) (" Meacham I "). On remand from the United States Supreme Court, the Second Circuit reversed position, finding that the plaintiffs failed to prove that the employer's justification for its decision to select them for layoff in connection with an involuntary reduction in force ("RIF") was unreasonable, and dismissed the plaintiffs' age discrimination claims. See Meacham v. Knolls Atomic Power Lab. a/k/a KAPL Inc. , 461 F.3d 134 (2d Cir. 2006) (" Meacham II ").

In Meacham I , the Second Circuit affirmed the jury's finding of disparate impact liability under the Age Discrimination in Employment Act ("ADEA"). Plaintiffs, employees all over the age of 40 at the Knolls Atomic Power Laboratory ("KAPL") in Niskayuna, New York, were laid off in a RIF. In order to implement the RIF, KAPL directed each of its managers to create a matrix listing all the employees in their groups and ranking them "between zero and ten for performance, flexibility, and criticality of their skills; giving up to ten points for company service." Meacham I , 381 F.3d at 63. The managers were to select the low-ranking employees to be laid off, and were then instructed to do an adverse impact analysis to determine whether the selection might have a disparate impact on a protected class of employees. Additionally, a review board, as well as KAPL's general manager and general counsel assessed the managers' selections. Plaintiffs alleged, however, that KAPL's reliance on subjective assessments of "criticality" and "flexibility" in implementing the RIF unfairly impacted older workers. The Second Circuit agreed in Meacham I .

The defendants then appealed their case to the Supreme Court. The Supreme Court vacated the Second Circuit's decision in Meacham I and remanded the case to the Second Circuit for reconsideration in light of the Supreme Court's decision in Smith v. City of Jackson , 544 U.S. 228 (2005), which had been decided after the Second Circuit issued its holding in Meacham I . In City of Jackson , the Supreme Court held that the business necessity test - under which the Meacham I court had previously held defendant liable - was no longer applicable in the ADEA context. Under the business necessity test, once the employee had made out a prima facie case showing a disparate impact, the employer had the burden of showing that its employment practices had a legitimate business justification. The Meacham II court recognized that under this test, should the employer meet its burden, the employee then had to show that the employer's justification did not pass the test of "business necessity"- "either that the challenged practice [did] not serve, in a significant way, the legitimate employment goals of the employer or that other tests or selection devices, without a similarly undesirable effect, would also serve the employer's legitimate hiring interests." The Supreme Court held in City of Jackson , however, that the business necessity test was no longer applicable in the ADEA context. Instead, the Supreme Court held in that case that the proper test is one of "reasonableness": An "employer is not liable under the ADEA so long as the challenged employment action, in relying on specific non-age factors, constitutes a reasonable means to the employer's legitimate goals."

Under this new test, the Meacham II court held that the employer had met its burden, but the plaintiffs had not. While the Meacham II court confirmed that it is not "a super-personnel department," it reasoned that "any system that makes employment decisions in part on such subjective grounds as flexibility and criticality may result in outcomes that disproportionately impact older workers; but at least to the extent that the decisions are made by managers who are in day-to-day supervisory relationships with their employees, such a system advances business objectives that will usually be reasonable." According to the Meacham II court, the burden of persuading the factfinder that the employer's justification is unreasonable is still borne by the plaintiff.

Meacham II effects a critical change in the law applicable to RIFs, making it significantly easier for an employer's decision to withstand challenge under a disparate impact analysis. Employers should set clear standards by which employees are to be selected for layoff and ensure that managers making termination decisions understand both these standards and the company's anti-discrimination policies. Additionally, adverse impact analyses should be performed to identify potentially problematic results and ensure compliance with applicable law.

Published January 1, 2007.